A project that costs $2,500 to install will provide annual cash flows of $600 for the next

Question:

A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years.

a. The firm accepts projects with payback periods of less than 5 years. What is this project's payback period? Will it be accepted?

b. Should this project be pursued if the discount rate is 2%? (What is its NPV?) What if the discount rate is 12%? Will the firm's decision change as the discount rate changes?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...